While high-growth stocks that are under $5 tend to be riskier than average, they can also provide aggressive investors with market-beating returns. Smaller companies in their earlier growth stages often fall into this low-price-per-share category. A stock price under $5 is commonplace for companies starting out and building their businesses. The key is identifying those poised for expansion with big-time upside over the long-term.
Of course, appropriate due diligence is critical, as low-priced stocks provide elevated volatility. Examining fundamentals like revenue growth, profitability, debt levels, and cash burn rates helps uncover promising opportunities worthy of the added risk.
As we inch closer to what will be the eventual terminal interest rate, I’ve spotted three stocks under $5 that possess tremendous growth potential, in my view. Trading at deep discounts relative to their potential, these rapidly-expanding yet still under-the-radar names could deliver triple-digit upside. While higher risk in nature, allocating a small percentage of one’s portfolio to well-researched moonshot stocks can boost overall portfolio returns. Let’s dive in!
SurgePays (NASDAQ:SURG) is a unique player in the world of fintech companies. I believe this company possesses an early-mover advantage in serving underbanked populations, providing essential prepaid wireless plans, discounted debit cards, and other financial products through its convenience store network.
In Q2 2022, SurgePays delivered impressive 28% revenue growth (revenue surged to $36 million) as its mobile subscriber base expanded rapidly. Despite trading under $5 per share, SURG generated $6 million in net income and $6.4 million in EBITDA, continuing on a profitable trajectory.
By aggressively expanding its retail network to a targeted 13,000 partner stores by year-end, I expect SurgePays’ subscriber base to rise dramatically. New B2B partnerships should also aid in the company’s growth. SurgePays is expected to provide wireless services on thousands of LeadEx ATMs, a move that should further accelerate subscriber growth. With its first-mover position, this micro-cap disruptor provides enormous upside, in my opinion. Unsurprisingly, the sole Wall Street analyst covering this stock provides a price target representing 115% upside potential.
Data Storage Corporation (DTST)
This under-the-radar IT infrastructure provider helps enterprises transition legacy data centers to the flexible cloud, a massive trend, in my view. In Q2 2023, Data Storage (NASDAQ:DTST) delivered strong 22% revenue growth driven by its high-margin subscription cloud solutions. Impressively, it achieved GAAP profitability for the second straight quarter.
What excites me is Data Storage’s accelerating commercial momentum, with the company securing several multimillion-dollar cloud contracts with leading enterprises in Q2. With only 450 clients currently, substantial growth runway exists as Data Storage expands its distribution channels.
Trading at 0.8-times sales and 26-times forward earnings, I believe DTST stock looks significantly undervalued relative to its prospects. Riding digitization and cloud tailwinds, this profitable micro-cap disruptor presents enormous upside from today’s sub-$5 price. Here too, a recent Wall Street rating this week by Maxim Group implies stellar 200% upside.
This rapidly-growing ad-tech firm powers recommendations across thousands of premium digital properties, enabling advertisers to precisely target engaged audiences. Despite being in penny territory, Taboola (NASDAQ:TBLA) is solidly profitable, with over $332 million in Q2 2023 revenue and nearly $16 million in adjusted EBITDA.
Taboola continues to rapidly gain market share, recently displacing competitors at major publishers like Barstool Sports and Nexstar Media. Growth initiatives like e-commerce advertising and bidding also gained momentum last quarter.
Looking ahead, Taboola’s upcoming integration with Yahoo in 2024 provides utterly massive potential, in my view. That’s because this partnership will expose Taboola’s advertisers to Yahoo’s nearly 900 million users. I believe this multi-billion-dollar opportunity remains overlooked, making TBLA an intriguing pick. But again, many would point out that it looks very expensive with a forward price-earnings ratio of 167-times. But that’s only if you look at year-end metrics.
Zoom out to 2024, and you’re looking at a 1,766.65% EPS rebound, putting the company’s forward price-earnings multiple at a solid 9-times. Sales growth is also expected to reach nearly $2 billion next year, with 33% year-over-year growth. Accordingly, the average Wall Street price target implies 62% upside potential for Taboola.
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On the date of publication, Omor Ibne Ehsan did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.